Use of Proceeds
You can use a 7(a)
loan to: expand or renovate facilities; purchase machinery, equipment, fixtures
and leasehold improvements; finance receivables and augment working capital; refinance
existing debt with compelling reason; finance seasonal lines of credit;
construct commercial buildings; and/or purchase land or buildings.
Terms, Interest Rates and Fees
The length of time
for repayment depends on the use of the proceeds and the ability of your
business to repay: usually five to 10 years for working capital, and up to 25
years for fixed assets such as the purchase or major renovation of real estate
or purchase of equipment (not to exceed the useful life of the equipment).
Both fixed and
variable interest rates are available. Rates are pegged at no more than 2.25
percent over the lowest prime rate* for loans with maturities of less than
seven years and up to 2.75 percent for seven years or longer. For loans under
$50,000, rates may be slightly higher.
The SBA charges the
lender a nominal fee to provide a guaranty, and the lender may pass this charge
on to you. The fee is based on the maturity of the loan and the dollar amount
that the SBA guarantees. On any loan with a maturity of one year or less, the
fee is just 0.25 percent of the guaranteed portion of the loan.
On loans with
maturities of more than one year where the portion that the SBA guarantees is
$150,000 or less, the guaranty fee is 2 percent of the guaranteed portion.
On loans with maturities
of more than one year, where the SBA's portion exceeds $150,000 but not more
than $700,000, the guaranty fee is 3 percent, and it is 3.5 per ent on loans
over $700,000.
Collateral
You must pledge
sufficient assets, to the extent that they are reasonably available, to adequately
secure the loan. Personal guaranties are required from all the principal owners
of the business. Liens on personal assets of the principals may be required.
However, in most cases a loan will not be declined where insufficient
collateral is the only unfavorable factor.
Eligibility
Your business
generally must be operated for profit and fall within the size standards set by
the SBA. The SBA determines if the business qualifies as a small business based
on the average number of employees during the preceding 12 months or on sales
averaged over the previous three years. Loans cannot be made to businesses
engaged in speculation or investment.
Maximum Size Standards
Manufacturing from 500 to 1,500 employees
Wholesaling - 100 employees Services - from $2.5 million
to $21.5 million in annual receipts
Retailing from $5 million to $21 million
General construction - from $13.5 million to $17 million
Special trade construction - average annual
receipts not to exceed $7 million Agriculture from $0.5 million to $9 million
What You Need to Take
to the Lender Documentation requirements may vary; contact your lender for the
information you must supply.
Common requirements include the following:
· Purpose of the loan
· History of the
business
· Financial statements
for three years (existing businesses)
· Schedule of term
debts (existing businesses)
· Aging of accounts
receivable and payable (existing businesses)
· Projected opening day
balance sheet (new businesses)
· Lease details
· Amount of investment
in the business by the owner(s)
· Projections of
income, expenses and cash flow
· Signed personal
financial statements
· Personal resume(s)
What the SBA Looks for:
1. Good character
2. Management
expertise and commitment necessary for success
3. Sufficient funds,
including the SBA-guaranteed loan, to operate the business on a sound financial
basis (for new businesses, this includes the resources to meet start-up
expenses and the initial operating phase)
4. Feasible business
plan
5. Adequate equity or
investment in the business
6. Sufficient
collateral
7. Ability to repay
the loan on time from the projected operating cash flow.
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